The environmental protection business was integrated and combat investment was introduced in stages. Part of the cash return is more conducive to the company's development and dividing the company's business into two sectors: rail transit and energy saving and environmental protection. In order to optimize the industrial structure, the company unified the subsidiaries involved in environmental protection business (including Suzhou Kehuan, Haituo Environment, Dakang Environment, etc.) into an environmental protection platform — Zhonghe Environment, and introduced Shanghai Shenneng Chuangchuang as a battle investment to acquire 90% of Zhonghe Environmental's shares in three stages in 2019-2021. The two sides reached a first-stage agreement on December 26, 2019: Shanghai Shenneng Chuangchuang plans to acquire 40% of Zhonghe Environmental's shares for 460.8 million yuan (total cost of Zhonghe Environmental). The company's environmental protection business is expected to receive resource support from Shen Neng. At the same time, listed companies will also receive capital return to relieve financial pressure and help the company achieve long-term sustainable development. The increase in the proportion of self-developed signals has led to an increase in gross margin. The BitRacon CBTC signal system independently developed by the company also has DTO/UTO driverless and interconnection functions, and is also suitable for various formats such as subways, modern streetcars, monorails/air rails, and urban railways. The company cooperated with Ansaldo in the early stages, and the gross margin was between 20% and 25%, while the gross margin for self-developed products was over 40%. Since the company first applied self-developed products to Chongqing Line 4 in 2016, the company's share of self-developed signal orders has continued to increase. Up to now, the bid amount for the self-developed signal system has exceeded 1,392 billion yuan this year, an increase of 166.16% over the previous year, accounting for about 63.85% of the new bid amount this year, which will drive the gross margin of the company's rail transit signal system to gradually rise. The rail transit signal system has sufficient orders in hand, and the combined growth rate of new signal system orders signed by major companies from 2015 to 2019 was over 40%. Currently, the signal system has orders in hand about 4 billion yuan. Up to now, the company's signal system has won a total of 2.118 billion yuan in bid for frontline projects in 2019, an increase of 256.26% over the same period last year. According to estimates of the rail traffic signal system order cycle of about 3 years, the company's signal system is expected to enter a period of rapid revenue confirmation growth from 2019 to 2021. Due to the large upfront investment in rail traffic signal systems, and large amounts of R&D and financial expenses are invested every year, the rail transit sector accounts for a relatively high fixed cost. According to our estimates, the rail transit signal system revenue break-even point is about 1 billion yuan. When revenue exceeds the break-even point, performance flexibility is huge. Profit forecasts and investment proposals The company is expected to achieve revenue of 2,468 billion yuan, 2,850 million yuan, and 3.249 billion yuan respectively in 2019-2021, and realized net profit attributable to shareholders of the parent company of 121 million yuan, 186 million yuan, and 274 million yuan respectively, corresponding to current PE 30, 20 and 13 times, respectively. Considering that the company has sufficient orders in hand and that the rail transit business has entered a stage of accelerated performance confirmation, the company was given a “buy” investment rating. Risks suggest that the bidding process for urban rail transit projects falls short of expectations; risk of impairment of assets such as accounts receivable; and environmental protection business integration falls short of expectations.